WIREDGOV

EXPERT COMMENT

The current crisis shows that Europe must transition to renewables to reduce its dependency on volatile fossil fuels. This week’s AccelerateEU plan rightly reaffirms that goal.

The global energy crisis caused by the closure of the Strait of Hormuz has demonstrated the vulnerability of relying on fossil fuels. Even if the Strait reopens in the near future, traffic flows are likely to be lower, with insurance premiums remaining high and Iran monitoring shipping through the Strait. QatarEnergy’s production facilities also remain damaged, impacting the supply of liquified natural gas (LNG) from the world’s largest exporter. As a result, energy prices are projected to remain high for the coming months at least. 

Even though Europe only imports roughly 10 per cent of its LNG from the Gulf, the global supply constraint has already caused European energy prices to rise, as Europe competes with Asian buyers to bid for non-Qatari LNG. Since the war started, the European Union (EU) has paid an additional €24 billion for fossil fuel imports. The scale of the crisis has led to higher inflation and lower growth forecasts globally, with the IMF warning that eurozone countries are among the hardest hit due to their lack of energy independence.

In response, the European Commission (EC) released the AccelerateEU package on Wednesday. The package contains a wide range of non-binding measures aimed at addressing rising energy costs and reducing ‘dependency on volatile fossil fuel markets.’ These include short-term measures such as deeper coordination between members on storing gas and targeted temporary subsidies alongside ways to lower energy consumption. It also strengthens existing long-term solutions such as electrification incentives and transnational grid interconnectivity. 

The package’s influence is likely to remain limited, given most fiscal policy remains national, and the measures are non-binding. However, it is a welcome step. Crucially, it maintains the push towards decarbonization using existing market-based instruments such as carbon pricing, through which Brussels can exert most influence.

Click here to continue reading the full version of this Expert Comment on the Chatham House website.